Estimated Tax Payments "What's New for 2007" IRS

from www.irs.gov


What's New for 2007
This section summarizes important changes that could affect your estimated tax payments for 2007. More information on these and other changes can be found in Publication 553.
Earned income credit (EIC). You may be able to take the EIC if:
A child lived with you and you earned less than $37,783 ($39,783 if married filing jointly), or
A child did not live with you and you earned less than $12,590 ($14,590 if married filing jointly).
The election to include combat pay as earned income for purposes of claiming the EIC is extended through 2007. The maximum investment income you can have and still get the credit has increased to $2,900. For more information, see Publication 596, Earned Income Credit (EIC).
Retirement savings plans. . The following paragraphs highlight changes that affect individual retirement arrangements (IRAs) and pension plans. For more information, see Publication 590. Traditional IRA deduction limits increased. You may be able to take an IRA deduction if you were covered by a retirement plan at work and your 2007 modified adjusted gross income (AGI) is less than $62,000 ($103,000 if married filing jointly or a qualifying widow(er)). Limit on elective deferral increases. The maximum elective deferral for 2007 is $15,500. For a SIMPLE plan, this amount is $10,500. Retirement savings contributions credit. For 2007, you may be able to claim this credit if your modified AGI is not more than $26,000 ($52,000 if married filing jointly, $39,000 if head of household). Catch-up contributions in certain employer bankruptcies. For 2007, 2008, and 2009, you may be able to deduct catch-up contributions of up to $3,000 each year to your IRA if you participated in a qualified cash or deferred arrangement (section 401(k) plan) of an employer who was a debtor in bankruptcy proceedings. For more details, see chapter 1 in Publication 590.
Certain credits no longer allowed against alternative minimum tax (AMT). The credit for child and dependent care expenses, credit for the elderly or the disabled, education credits, residential energy credits, mortgage interest credit, and the District of Columbia first-time homebuyer credit are no longer allowed against AMT and a new tax liability limit applies. For most people, this limit is your regular tax minus any tentative minimum tax.
AMT exemption amount decreased. The AMT exemption amount will decrease to $33,750 ($45,000 if married filing jointly or a qualifying widow(er); $22,500 if married filing separately).
Credit for prior year minimum tax. . If you paid AMT before 2004 that you have not been able to credit against your regular tax liability, you may be able to claim a refundable tax credit for part of the AMT. To see if you qualify and to compute the refundable amount of your credit, see Publication 553.
Standard mileage rates. Beginning in 2007, the standard mileage rate for the cost of operating your car is:
48½ cents a mile for all business miles driven,
20 cents a mile for the use of your car for medical reasons,
20 cents a mile for the use of your car for a deductible move, and
14 cents a mile for the use of your car for charitable reasons.
Deduction for domestic production activities. . For 2007, the deduction rate will increase to 6%.
Deduction for qualified mortgage insurance premiums. . A homeowner who obtained a qualified mortgage in 2007, and whose AGI is less than $110,000 ($55,000 if married filing separately), may be able to deduct some of the mortgage insurance premiums paid during the year (as if they were mortgage interest) as an itemized deduction.
Health savings account (HSA). Beginning in 2007:
You can fund your HSA by making a one-time direct transfer from your IRA to your HSA.
The maximum deductible contribution is no longer limited to the annual deductible under the high deductible health plan.
You are allowed a maximum HSA contribution of $2,850 for single coverage ($5,650 for family coverage).
For more information about these and other changes to HSAs, see Publication 553.
Expired tax benefits. The following tax benefits have expired and will not apply for 2007. Certain relief granted for hurricanes Katrina, Wilma, and Rita.
Additional exemption for housing individuals displaced by Hurricane Katrina.
Tax-favored treatment of qualified hurricane distributions from eligible retirement plans.
Increased limits and delayed repayment on loans from qualified employer plans.
Increased limits for the Hope and lifetime learning credits.
Discharge of nonbusiness indebtedness by reason of Hurricane Katrina.
Other benefits.
Qualified electric vehicle credit.

Introduction

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.
Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty. If you do not pay enough by the due date of each payment period (see When To Pay Estimated Tax on page 22), you may be charged a penalty even if you are due a refund when you file your tax return.